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September 29, 2016

California Governor Signs Four Bills Affecting Density Bonus Projects

On September 28, 2016, Governor Brown signed new legislation relating to the construction of affordable and market-rate housing. Although AB 2501 has drawn the most attention from commentators and the media, AB 2442 and AB 2556 also amend Government Code section 65915, and AB 1934 adds section 65915.7 to the State Density Bonus Law (or "DBL"). In broad strokes, these bills accomplish the following:

AB 2442 expands the categories of specialized housing that could qualify a development for a density bonus.

AB 2501 attempts to clarify and streamline the procedure at the local level, while restating the DBL's objective of producing more housing units.

AB 2556 answers some of the implementation questions left open by AB 2222 as it relates to the required replacement of affordable units previously onsite.

Finally, AB 1934 provides certain development bonuses for commercial developers that partner with affordable housing developers in conjunction with their commercial projects.

The Density Bonus Law

The purpose of the DBL, enacted in 1979, is to encourage cities and counties to offer density bonuses, incentives, and waivers to housing developments that include certain percentages of affordable units. As recognized by California courts, the Density Bonus Law rewards a "developer who agrees to build a certain percentage of low-income housing with the opportunity to build more residences than would otherwise be permitted by the applicable local regulations." (Friends of Lagoon Valley v. City of Vacaville (2007) 154 Cal. App. 4th 807, 824.) By incentivizing developers, the DBL promotes the construction of housing for seniors and low-income families.

AB 2442

Recognizing the statewide need for certain types of specialized housing, AB 2442 adds that a density bonus of 20 percent shall be granted where at least 10 percent of the total housing units are designated for foster youth, disabled veterans, or homeless persons, and are offered at the same affordability levels as very-low income units. (See new Gov. Code §§ 65915(b)(1)(E) and 65915(f)(3)(B).)

AB 2501

Although local agencies have always been required to comply with the DBL, AB 2501 now requires the agencies to provide for expeditious processing of density bonus applications by (A) adopting procedures and timelines, (B) providing applicants with a list of documents and information required for a density bonus application to be deemed complete, and (C) notifying applicants when applications are complete consistent with the Permit Streamlining Act. (See new Gov. Code § 65915(a)(3).) Local governments are also prohibited from requiring the preparation of an additional report or study in order to review or approve a density bonus application, but may require reasonable documentation to establish eligibility for a requested density bonus, incentives, concessions, waivers, or reduced parking ratios, and the eligibility standards for incentives and concessions have been modified slightly. (See new Gov. Code §§ 65915(a)(2) and 65915(k).) Although already generally recognized by many jurisdictions, the burden of proof in denying a requested incentive or concession is now expressly on the local agency. (See new Gov. Code § 65915(d)(4).)

In recent years, local governments have faced challenges relating to the calculation of project densities under the DBL. Specifically, many local governments have asserted a right to “round down” when the calculation of base density for a given parcel would result in a fractional number. Developers pointed to section 65915(f)(5) as direct evidence that the legislature intended for all calculations to be rounded up, but local policies vary. New section 65915(q) makes clear that “each component of any density calculation, including base density and bonus density, resulting in fractional units shall be separately rounded up to the next whole number. The Legislature finds and declares that this provision is declaratory of existing law.”

Finally, AB 2501 also makes clear that developers of density bonus projects may choose to accept no increase in density yet still be eligible to receive incentives and development standard waivers. (Gov. Code §§ 65915(f).)

AB 2556

In 2014, the Legislature passed AB 2222 as part of an effort to ensure that housing units occupied by lower-income persons or households were not being wiped out and replaced with density bonus projects that yielded fewer net affordable units. Many questions were raised about how that law would be implemented, especially where reliable information was not available about former occupants. In the absence of such information, AB 2556 creates a rebuttable presumption that lower income occupants lived in those units in the same proportion as the overall percentage of lower income occupants in the jurisdiction, and does so based on the US Department of Housing and Urban Development's Comprehensive Housing Affordability Strategy database. (See new Gov. Code § 65915(c)(3)(B).)

AB 2556 also provides guidance regarding rent-controlled units by giving the local agency the power to require either (i) replacement with rental units subject to a recorded affordability restriction for at least 55 years, or (ii) replacement with units that remain subject to the local rent or price control ordinance. (See new Gov. Code § 65915(c)(3)(C).)

The last bit of guidance provided by AB 2556 relates to the definition of "equivalent size" for replacement units, and states that the replacement units must contain at least the same total number of bedrooms as the units being replaced. (See new Gov. Code § 65915(c)(3)(D).)

AB 1934

By adding the new Government Code section 65915.7, the Legislature opens density bonus development to commercial developers. As the bill's author explained, "AB 1934 seeks to marry two needs: (a) the state's need for affordable housing and (b) local government's desire for increased revenues, by encouraging non-traditional housing developers to enter the market and think outside the box in their developments."

This bill creates an opportunity for commercial developers to contribute affordable housing in a variety of ways, primarily through partnering with an affordable housing developer to construct affordable units. The affordable housing developer would still be eligible to receive bonuses, incentives and waivers provided under Section 65915 for qualifying projects, but the commercial developer could also receive a "development bonus" which means incentives agreed upon between the commercial developer and the local government, including but not limited to modifications to maximum allowable intensity, maximum FAR, maximum height limits, minimum parking requirements, upper floor accessibility regulations, and zoning or land use regulations. (See new Gov. Code § 65915.7(b).)

Developers interested in utilizing this program should note that AB 1934 does include a sunset provision stating that it will remain in effect only until January 1, 2022. (See new Gov. Code § 65915.7(m).)

Practical Considerations

Although several affordable housing and by-right development proposals stalled in the summer of 2016, the passage of these four bills demonstrates the importance of density bonus policy in the midst of our state's housing crisis. AB 2501 adds new subdivision (r) to reiterate that the DBL "shall be interpreted liberally in favor of producing the maximum number of total housing units." Local governments should review the new legislation carefully to ensure proper implementation of the DBL as revised, including the restated requirement to round up all density calculations from AB 2501. Developers with questions about the impact of these laws on their projects are encouraged to seek legal counsel.